243 SCRA 436 Business Organization Corporation Law Corporate Nationality Public Utility

Nationality Requirement in Nationalized Areas of Activity

In 1989, the government planned to build a railway transit line along EDSA. No bidding was made but
certain corporations were invited to prequalify. The only corporation to qualify was the EDSA LRT
Consortium which was obviously formed for this particular undertaking. An agreement was then made
between the government, through the Department of Transportation and Communication (DOTC), and
EDSA LRT Consortium. The agreement was based on the Build-Operate-Transfer scheme provided for by
law (RA 6957, amended by RA 7718). Under the agreement, EDSA LRT Consortium shall build the
facilities, i.e., railways, and shall supply the train cabs. Every phase that is completed shall be turned over
to the DOTC and the latter shall pay rent for the same for 25 years. By the end of 25 years, it was
projected that the government shall have fully paid EDSA LRT Consortium. Thereafter, EDSA LRT
Consortium shall sell the facilities to the government for $1.00.

However, Senators Francisco Tatad, John Osmea, and Rodolfo Biazon opposed the implementation of
said agreement as they averred that EDSA LRT Consortium is a foreign corporation as it was organized
under Hongkong laws; that as such, it cannot own a public utility such as the EDSA railway transit
because this falls under the nationalized areas of activities. The petition was filed against Jesus Garcia, Jr.
in his capacity as DOTC Secretary.

ISSUE: Whether or not the petition shall prosper.

HELD: No. The Supreme Court made a clarification. The SC ruled that EDSA LRT Consortium, under the
agreement, does not and will not become the owner of a public utility hence, the question of its
nationality is misplaced. It is true that a foreign corporation cannot own a public utility but in this case
what EDSA LRT Consortium will be owning are the facilities that it will be building for the EDSA railway
project. There is no prohibition against a foreign corporation to own facilities used for a public utility.
Further, it cannot be said that EDSA LRT Consortium will be the one operating the public utility for it will
be DOTC that will operate the railway transit. DOTC will be the one exacting fees from the people for the
use of the railway and from the proceeds, it shall be paying the rent due to EDSA LRT Consortium. All
that EDSA LRT Consortium has to do is to build the facilities and receive rent from the use thereof by the
government for 25 years it will not operate the railway transit. Although EDSA LRT Consortium is a
corporation formed for the purpose of building a public utility it does not automatically mean that it is
operating a public utility. The moment for determining the requisite Filipino nationality is when the
entity applies for a franchise, certificate or any other form of authorization for that purpose.